VC funding drops in Q1 2016, should startups be worried?

Venture capitalists have scaled back the size and amount of their deals across the world and UK-based startups received less funding during Q1 2016 than in Q4 2015 as a result.

A new report from the analytics company CB Insights and the advisory firm KPMG Enterprise has revealed that, between January and March, startups in the UK were able to raise $1.3 billion across 105 deals. Across Europe as a whole venture capitalist (VC) funding totaled $3.5 billion across 338 deals. 36 per cent of all VC funding in Europe went to companies in the UK.

Tech companies received 77 per cent of the overall VC investment during Q1 2016. This is down from 79 per cent during the last quarter of 2015.

The report sees this decline in VC investment in the UK as a short term trend. Overall there is a great deal of liquidity in the global market and US companies received a level of VC capital that was on par with what they received during the dot-com era in the early 2000's.

A number of factors are responsible for the recent decline in VC investment. An economic slowdown in China, rising interest rates, the upcoming US election and the Brexit referendum in the UK have all played a part in venture capitalists being a bit more cautious with their investments.

Going forward, VC investment will likely be received by companies that show a detailed plan regarding how they will become profitable or by companies with strong balance sheets and business models.